Correlation Between Morningstar and MSCI

Can any of the company-specific risk be diversified away by investing in both Morningstar and MSCI at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Morningstar and MSCI into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Morningstar and MSCI Inc, you can compare the effects of market volatilities on Morningstar and MSCI and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Morningstar with a short position of MSCI. Check out your portfolio center. Please also check ongoing floating volatility patterns of Morningstar and MSCI.

Diversification Opportunities for Morningstar and MSCI

0.81

Correlation Coefficient

Morningstar  MSCI

Very poor diversification

The 3 months correlation between Morningstar and MSCI is 0.81. Overlapping area represents the amount of risk that can be diversified away by holding Morningstar and MSCI Inc in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on MSCI Inc and Morningstar is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Morningstar are associated (or correlated) with MSCI. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of MSCI Inc has no effect on the direction of Morningstar i.e., Morningstar and MSCI go up and down completely randomly.

Pair Corralation between Morningstar and MSCI

Given the investment horizon of 90 days Morningstar is expected to under-perform the MSCI. But the stock apears to be less risky and, when comparing its historical volatility, Morningstar is 1.15 times less risky than MSCI. The stock trades about -0.16 of its potential returns per unit of risk. The MSCI Inc is currently generating about -0.07 of returns per unit of risk over similar time horizon. If you would invest  59,776  in MSCI Inc on December 29, 2024 and sell it today you would lose (3,929) from holding MSCI Inc or give up 6.57% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

Morningstar  vs.  MSCI Inc

Morningstar

Risk-Adjusted Performance

Very Weak

Over the last 90 days Morningstar has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of uncertain performance in the last few months, the Stock's basic indicators remain very healthy which may send shares a bit higher in April 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

MSCI Inc

Risk-Adjusted Performance

Very Weak

Over the last 90 days MSCI Inc has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest unfluctuating performance, the Stock's fundamental indicators remain strong and the recent confusion on Wall Street may also be a sign of long-lasting gains for the firm traders.

Pair Trading with Morningstar and MSCI

The main advantage of trading using opposite Morningstar and MSCI positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Morningstar position performs unexpectedly, MSCI can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in MSCI will offset losses from the drop in MSCI's long position.

The idea behind Morningstar and MSCI Inc pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Idea Optimizer module to use advanced portfolio builder with pre-computed micro ideas to build optimal portfolio .